News and views
Optimism from Obama was doused by data, leaving risk appetite a little stronger. Obama’ unveiled his budget proposal for an additional US$750 billion (or $250 billion net over time), taking the S&P500 to 780. Very weak reports on durable goods orders, jobless claims, and new home sales, then pushed the index back down to around 760, unchanged on the day. Commodities performed strongly, extending a three day rally. Oil’s 5% rise also had the U.A.E.’s output cuts as support, and copper traders felt the global economy was close to a base, taking the metal 3% higher. US treasuries (10yr) suffered by 5bp from the pulse in risk as well as a poorly attended 7 year auction.
NZD’s 0.50 to 0.52 range entered its tenth day, but last night’s range was the tightest seen this year – 0.5080 to 0.5130. Weak reports from RBNZ (inflation expectations) and NBNZ (business confidence) haven’t taken the cuurency lower, suggesting the market is overwhelmingly short NZD.
AUD rallied almost a cent to 0.6550 on the improved risk environment, and is bumping up against key resistance. The AUD/NZD cross, then, finally broke the 1.26 to 1.27 range in convincing fashion, reaching 1.2810, and sustaining that area as we write.
EUR stuck to a 1.27 to 1.28 range, supported somewhat by the UK’s confirmation of assistance for large banks RBS and Lloyd’s. The government’s stake in RBS rises to 84%, in exchange for an asset guarantee. RBS’s GBP24 billion loss, the biggest in British history, didn’t faze the GBP, which jumped to the 1.43-1.44 area. JPY extended its decline above 98, S&P forecasting a 4% decline in Japan’s GDP for 2009 and criticising the government’s ineffectiveness.
US durable goods orders down 5.2% in Jan. Durable orders posted their fourth consecutive fall in January, reflecting broad-based weakness across all categories including core capital goods orders, autos and defence. Only civilian aircraft orders rose, following the end of the strike at Boeing. Note that 3 month annualised shipments of core capital goods were down 19.7% in the three months to January, whereas orders of same were down 34.4%, which suggests that recent weakness in business investment can only be a taster of things to come with Q1 shaping up as a shocker for business spending. Note also the sharp fall in inventories, consistent with the view that stocks unwinding will be a drag on Q1 GDP growth. US new home sales drop 10.2% in Jan, not far off Westpac’s bottom of the market 12% forecast decline, but consistent with recent monthly plunges in housing starts and homebuilder confidence. Unsold inventory of new homes is now worth 13 months of the January sales pace and that will continue to put downward pressure on both prices and activity in the construction sector.US initial jobless claims roared 36k higher last week, the 667k outcome being the highest since the recession of 1982; in the prior week continuing claims soared to yet another new cycle high. Both results are consistent with the labour market shedding jobs even more quickly than the recent 600k pace seen around the turn of the year.
All of the February business and consumer confidence surveys for Euroland revealed further dramatic slippage, in some cases to new record lows. Even the retail PMI stood out by falling after two consecutive gains. These survey results can only deepen European Central Bank officials’ new-found concern about the pace of contraction in economic activity late last year and now in 2009.
Consistent with that, Euroland money supply growth continued to decelerate earlier this year.
UK house prices continued to slide in Feb, down 17.6% yr, reflecting the lack of mortgage availability and slumping potential buyer confidence. The announcements by the Royal Bank of Scotland that it lost £24.1bn last year and will transfer £540bn worth of assets to a “bad bank” can only further undermine UK homebuyer confidence.
Outlook
Today’s lightweight data releases are unlikely to move the NZD, so a range of 0.5050 to 0.5150 is our best guess. This morning’s Bollard comment favouring the NZD’s decline (assists the economy) is a clue regarding official bias. Our longet term outlook remains weak for NZD, and next week’s RBA meeting will be a key driver, the market expecting less dovish action.
